Unstable Iraq and deep-water Brazil are projected to make up more than half of the global increase in oil production over the next two decades, according to the International Energy Agency. It's not impossible, Cunningham writes, but it’s quite a risky bet.

A worker adjusts the valve of an oil pipe at West Qurna oilfield in Iraq's southern province of Basra.

Atef Hassan/Reuters/File

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Oil prices will only rise moderately over the next 20 years according to estimates from the International Energy Agency. The IEA released the 2013 edition of its much-anticipated World Energy Outlook, which projects oil prices to rise steadily but slowly to $128 per barrel (in 2012 dollars) by 2035.

Leaving aside the fact that these projections are usually way off, the report bases its rosy figures on some pretty tenuous developments. For example, for prices to keep from spiking much higher than the projected $128 per barrel, production will have to keep up with rising demand. According to the report, world oil production will increase from the current rate of 89 million barrels per day (mb/d) to 101 mb/d by 2035. Therefore, for this to successfully play out, global production needs to add 12 mb/d.

Yet, the IEA believes that over half of this production will come from two countries: Iraq and Brazil. First, let’s take Iraq. Iraq has the fifth largest oil reserves in the world at 141 billion barrels and there are high hopes that it can ramp up production. In fact, the IEA is predicting that it will be the largest source of additional oil production in the world over the next 20 years. Iraq is so important that the IEA published a special report on its energy sector last year, in which it predicted that the Middle Eastern country could double its production from 3 mb/d in 2012 to 6 mb/d by 2020, steadily ratcheting up production to 8.3 mb/d by 2035. (Related article: Serious Oil Problems Uncovered in Nigeria)

A lot will have to go right for this scenario to play out. Iraq suffers from several problems that will stand in its way. First, political leaders have yet to pass a hydrocarbon law that would bring certainty to the sector. Kurdistan has made its own oil deals with international companies and hopes to build a pipeline through Turkey. This has sparked the ire of Baghdad. The dispute of oil revenue sharing is far from settled. Second, Iraqi oil infrastructure is in pretty bad shape.War, sanctions, sabotage, and a lack of investment have taken its toll. Third, rapidly expanding oil production will require investment, and investment will require security. The Iraqi government made progress in bringing down violence in recent years, but it has roared back in 2013. With 5,500 people killed thus far this year, 2013 has been the deadliest year in Iraq since 2008. All of these problems will need to be addressed for Iraq to nearly triple its oil production over the next 20 years.

The other country in which the IEA is placing its faith is Brazil. Already a major producer, the IEA expects Brazil to also triple its production by 2035, representing around one-third of the global increase. Production will almost entirely come from ultra-deep water, beneath a thick layer of salt. These pre-salt reserves, although significant, are capital-intensive and difficult to reach. It is far from clear that Brazil can successfully tap into this oil. (Related article: Libya's Oil May be its Downfall)

What about the U.S? Much of the buzz around the report centered on the role of unconventional oil production in the U.S., which may allow the U.S. to surpass Russia and Saudi Arabia to become the world’s largest oil producer by the end of the decade. This surge in production in oil and natural gas has spurred headlines and euphoria in Washington about U.S. “energy independence” or “self-sufficiency.” Yet, as the report indicates, such dominance may be fleeting as shale production suffers from rapid initial decline rates. The U.S. shale revolution may fizzle out by the beginning of the next decade.

So, we are left with two risky scenarios playing out in order to make up more than half of the global increase in oil production over the next two decades: unstable Iraq and deep-water Brazil. Not impossible, but it’s quite a risky bet. If one or both of these scenarios doesn’t play out, the world will experience oil prices significantly higher than the IEA predicts in its recent report.

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